Intrinsic value of SPS Commerce, Inc. - SPSC

Previous Close

$46.21

  Intrinsic Value

$81.61

stock screener

  Rating & Target

str. buy

+77%

Previous close

$46.21

 
Intrinsic value

$81.61

 
Up/down potential

+77%

 
Rating

str. buy

We calculate the intrinsic value of SPSC stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  12.30
  11.57
  10.91
  10.32
  9.79
  9.31
  8.88
  8.49
  8.14
  7.83
  7.55
  7.29
  7.06
  6.86
  6.67
  6.50
  6.35
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
Revenue, $m
  279
  311
  345
  380
  417
  456
  497
  539
  583
  629
  676
  725
  776
  830
  885
  943
  1,002
  1,065
  1,130
  1,197
  1,268
  1,341
  1,418
  1,498
  1,582
  1,669
  1,760
  1,856
  1,956
  2,060
Variable operating expenses, $m
  112
  124
  137
  150
  164
  178
  193
  209
  225
  242
  250
  268
  287
  307
  327
  349
  371
  394
  418
  443
  469
  496
  525
  554
  585
  617
  651
  686
  723
  762
Fixed operating expenses, $m
  126
  128
  131
  134
  137
  140
  143
  146
  150
  153
  156
  160
  163
  167
  170
  174
  178
  182
  186
  190
  194
  199
  203
  207
  212
  217
  221
  226
  231
  236
Total operating expenses, $m
  238
  252
  268
  284
  301
  318
  336
  355
  375
  395
  406
  428
  450
  474
  497
  523
  549
  576
  604
  633
  663
  695
  728
  761
  797
  834
  872
  912
  954
  998
Operating income, $m
  41
  58
  77
  96
  117
  138
  161
  184
  208
  234
  270
  297
  326
  356
  387
  420
  454
  489
  526
  564
  605
  647
  691
  737
  785
  835
  888
  943
  1,001
  1,062
EBITDA, $m
  58
  77
  96
  117
  139
  161
  185
  210
  235
  262
  290
  319
  350
  381
  414
  448
  484
  521
  560
  601
  643
  688
  734
  782
  833
  886
  942
  1,000
  1,061
  1,125
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
Earnings before tax, $m
  41
  58
  76
  95
  115
  136
  158
  180
  204
  229
  264
  291
  319
  348
  379
  410
  443
  478
  514
  551
  591
  632
  675
  719
  766
  816
  867
  921
  978
  1,037
Tax expense, $m
  11
  16
  20
  26
  31
  37
  43
  49
  55
  62
  71
  79
  86
  94
  102
  111
  120
  129
  139
  149
  159
  171
  182
  194
  207
  220
  234
  249
  264
  280
Net income, $m
  30
  42
  55
  69
  84
  99
  115
  132
  149
  167
  193
  212
  233
  254
  276
  300
  324
  349
  375
  403
  431
  461
  492
  525
  560
  595
  633
  672
  714
  757

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  297
  331
  367
  405
  445
  486
  529
  574
  621
  669
  720
  772
  827
  884
  942
  1,004
  1,068
  1,134
  1,203
  1,275
  1,350
  1,428
  1,510
  1,595
  1,684
  1,777
  1,875
  1,976
  2,083
  2,194
Adjusted assets (=assets-cash), $m
  297
  331
  367
  405
  445
  486
  529
  574
  621
  669
  720
  772
  827
  884
  942
  1,004
  1,068
  1,134
  1,203
  1,275
  1,350
  1,428
  1,510
  1,595
  1,684
  1,777
  1,875
  1,976
  2,083
  2,194
Revenue / Adjusted assets
  0.939
  0.940
  0.940
  0.938
  0.937
  0.938
  0.940
  0.939
  0.939
  0.940
  0.939
  0.939
  0.938
  0.939
  0.939
  0.939
  0.938
  0.939
  0.939
  0.939
  0.939
  0.939
  0.939
  0.939
  0.939
  0.939
  0.939
  0.939
  0.939
  0.939
Average production assets, $m
  66
  74
  82
  90
  99
  109
  118
  128
  139
  150
  161
  173
  185
  197
  211
  224
  239
  253
  269
  285
  302
  319
  337
  357
  376
  397
  419
  442
  465
  490
Working capital, $m
  16
  18
  20
  22
  25
  27
  29
  32
  34
  37
  40
  43
  46
  49
  52
  56
  59
  63
  67
  71
  75
  79
  84
  88
  93
  98
  104
  109
  115
  122
Total debt, $m
  8
  17
  26
  36
  46
  56
  67
  79
  91
  103
  116
  129
  143
  157
  172
  188
  204
  221
  238
  257
  276
  296
  316
  338
  361
  384
  409
  435
  462
  490
Total liabilities, $m
  75
  84
  93
  103
  113
  123
  134
  146
  158
  170
  183
  196
  210
  224
  239
  255
  271
  288
  306
  324
  343
  363
  384
  405
  428
  451
  476
  502
  529
  557
Total equity, $m
  221
  247
  274
  302
  332
  363
  395
  428
  463
  499
  537
  576
  617
  659
  703
  749
  796
  846
  897
  951
  1,007
  1,066
  1,127
  1,190
  1,257
  1,326
  1,399
  1,474
  1,554
  1,637
Total liabilities and equity, $m
  296
  331
  367
  405
  445
  486
  529
  574
  621
  669
  720
  772
  827
  883
  942
  1,004
  1,067
  1,134
  1,203
  1,275
  1,350
  1,429
  1,511
  1,595
  1,685
  1,777
  1,875
  1,976
  2,083
  2,194
Debt-to-equity ratio
  0.040
  0.070
  0.100
  0.120
  0.140
  0.160
  0.170
  0.180
  0.200
  0.210
  0.220
  0.220
  0.230
  0.240
  0.240
  0.250
  0.260
  0.260
  0.270
  0.270
  0.270
  0.280
  0.280
  0.280
  0.290
  0.290
  0.290
  0.290
  0.300
  0.300
Adjusted equity ratio
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  30
  42
  55
  69
  84
  99
  115
  132
  149
  167
  193
  212
  233
  254
  276
  300
  324
  349
  375
  403
  431
  461
  492
  525
  560
  595
  633
  672
  714
  757
Depreciation, amort., depletion, $m
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  21
  22
  24
  25
  27
  29
  31
  32
  34
  37
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
Funds from operations, $m
  47
  61
  75
  90
  106
  122
  139
  157
  176
  196
  213
  235
  257
  280
  303
  328
  354
  381
  410
  439
  470
  502
  536
  571
  608
  646
  687
  729
  773
  820
Change in working capital, $m
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
Cash from operations, $m
  46
  59
  73
  88
  104
  120
  137
  155
  173
  193
  211
  232
  254
  276
  300
  325
  351
  378
  406
  435
  466
  498
  531
  566
  603
  641
  681
  723
  767
  814
Maintenance CAPEX, $m
  -8
  -8
  -9
  -11
  -12
  -13
  -14
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -29
  -31
  -32
  -34
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -57
  -60
New CAPEX, $m
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
Cash from investing activities, $m
  -15
  -16
  -17
  -19
  -21
  -22
  -24
  -25
  -26
  -29
  -30
  -33
  -34
  -37
  -38
  -41
  -43
  -46
  -47
  -50
  -54
  -56
  -59
  -62
  -66
  -69
  -73
  -77
  -81
  -85
Free cash flow, $m
  31
  43
  55
  69
  83
  98
  113
  130
  147
  164
  180
  199
  219
  240
  262
  284
  308
  332
  358
  385
  412
  442
  472
  504
  537
  572
  609
  647
  687
  729
Issuance/(repayment) of debt, $m
  8
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  8
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
Total cash flow (excl. dividends), $m
  39
  51
  65
  79
  93
  108
  124
  141
  158
  177
  193
  213
  233
  254
  277
  300
  324
  349
  375
  403
  431
  461
  493
  526
  560
  596
  633
  673
  714
  757
Retained Cash Flow (-), $m
  -24
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -64
  -66
  -69
  -73
  -76
  -79
  -83
Prev. year cash balance distribution, $m
  122
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  137
  26
  38
  50
  64
  78
  92
  108
  124
  140
  155
  173
  192
  212
  233
  254
  276
  300
  324
  349
  375
  403
  432
  462
  493
  526
  561
  597
  635
  674
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  131
  24
  33
  41
  49
  56
  62
  67
  71
  74
  74
  74
  73
  71
  68
  65
  60
  55
  50
  44
  39
  33
  28
  24
  19
  15
  12
  9
  7
  5
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

SPS Commerce, Inc. is a provider of cloud-based supply chain management solutions, providing network-proven fulfillment, sourcing and item assortment management solutions, along with retail performance analytics. The Company provides its solutions through the SPS Commerce platform, a cloud-based product suite that manages the way suppliers, retailers, distributors and logistics firms orchestrate the sourcing, set up of new vendors and items, and fulfillment of products that customers buy from retailers and suppliers. The Fulfillment solution provides fulfillment automation and replaces or augments an organization's existing trading partner electronic communication infrastructure, enabling suppliers to have visibility into the journey of an order and comply with retailers' rule books and enabling the electronic exchange of information among various trading partners through various protocols. The Community Development solution provides communication programs based on its best practices.

FINANCIAL RATIOS  of  SPS Commerce, Inc. (SPSC)

Valuation Ratios
P/E Ratio 131.5
Price to Sales 4.1
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 41.5
Price to Free Cash Flow 71.8
Growth Rates
Sales Growth Rate 21.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11.1%
Cap. Spend. - 3 Yr. Gr. Rate 5.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.8
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.1%
Ret/ On Assets - 3 Yr. Avg. 1.8%
Return On Total Capital 2.5%
Ret/ On T. Cap. - 3 Yr. Avg. 2.1%
Return On Equity 2.5%
Return On Equity - 3 Yr. Avg. 2.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 66.8%
Gross Margin - 3 Yr. Avg. 67.8%
EBITDA Margin 10.9%
EBITDA Margin - 3 Yr. Avg. 10.4%
Operating Margin 3.6%
Oper. Margin - 3 Yr. Avg. 3.7%
Pre-Tax Margin 4.7%
Pre-Tax Margin - 3 Yr. Avg. 4.1%
Net Profit Margin 3.1%
Net Profit Margin - 3 Yr. Avg. 2.9%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 29%
Payout Ratio 0%

SPSC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SPSC stock intrinsic value calculation we used $248 million for the last fiscal year's total revenue generated by SPS Commerce, Inc.. The default revenue input number comes from 0001 income statement of SPS Commerce, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SPSC stock valuation model: a) initial revenue growth rate of 12.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for SPSC is calculated based on our internal credit rating of SPS Commerce, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of SPS Commerce, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SPSC stock the variable cost ratio is equal to 40.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $123 million in the base year in the intrinsic value calculation for SPSC stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for SPS Commerce, Inc..

Corporate tax rate of 27% is the nominal tax rate for SPS Commerce, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SPSC stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SPSC are equal to 23.8%.

Life of production assets of 7.8 years is the average useful life of capital assets used in SPS Commerce, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SPSC is equal to 5.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $318.974 million for SPS Commerce, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 17.715 million for SPS Commerce, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of SPS Commerce, Inc. at the current share price and the inputted number of shares is $0.8 billion.

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